ASIC: stock market is not rigged

Regulators and fund managers are angry about claims that ASX shares are being manipulated towards the end of trading and insist there are legitimate reasons for the increased volatility at the end of the day.

The Australian Securities and Investments Commission, the ASX and fund managers instead pointed to quarterly rebalancing of stock market indices where fund managers buy and sell shares in the closing auction in order to replicate the index.

“Volume should not be mistaken for misconduct," an ASIC spokesman said yesterday. “Markets have different trading models. We have a closing auction. There is concentration of volume in our market at the end of the day due to the market’s daily closing auction."

The ASX said that high trading volumes in Village Roadshow and Oceana Gold at the close of trade of December 20 last year occurred because Village were added and Oceana removed from the S&P/ASX 200 Index.

“On the quarterly index rebalance days – which included 20 December 2013 – a larger than usual volume is ­typically traded in the affected ­securities, which may result in price volatility, both during the day and especially at the closing single price auction," ASX spokesman ­Matthew Gibbs said.

The policy adviser to the Stockbrokers Association of Australia, Doug Clark, said that while manipulation may occur, he would be “very surprised if we were 10 times worse than India".

Founder of high-frequency trading firm Tibra Capital Glenn Williamson contacted The Australian Financial Review in frustration at the “hyperbole" in the Michael Lewis book Flash Boys and claims by Industry Super Australia that high frequency traders are costing large investors $2 billion a year.

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“Based on a more reasonable set of assumptions ... I would be shocked if the combined gross revenue of all the HFT firms on the Australian market was higher than $20 million . . . a claim of $1.6 billion is indefensible," Williamson wrote to Industry Super Australia in an email.